Coming soon to Middle Britain: The Doldrums

On the surface, cathedral cities like Ely are the epitome of English tranquillity. But as Lisa Bachelor discovered, the mortgage squeeze is undermining its economy, devastating business after business as consumer confidence slumps

The sun is shining in Ely, just north of Cambridge. It is market day, traditionally the busiest shopping day of the week, but the quaint little boutique shops down Forehill are quiet.

One shop lies completely silent and empty; the name of its previous occupant is still above the window, but the door is locked and the unopened mail is gathering on the floor. Harris & Co closed its doors a few weeks ago, the second estate agency in a matter of months to shut up shop in Ely.

Neighbouring shopkeepers say it happened overnight. Around the corner on St Mary's Street, another estate agency, Januarys, lies empty, the building covered in scaffolding. It shut its doors in February, part of a wider cull by its parent company, Countrywide, which has closed 50 branches this year.

The story is a familiar one, repeated in towns and villages across the country. Last week Reeds Rains, part of property group LSL, which also owns the Your Move network, confirmed that it was axing 15 branches in the north of England.

Spicerhaart, another big chain, has closed seven offices in England and two in Wales, while shares in south of England chain Humberts were suspended nine days ago while it considers the future of its 80 branches.

Business monitoring service Debtwire believes that about 150 estate agents' branches are now closing every week in the UK, victims of a potentially prolonged downturn in the housing market.

Last week the Council of Mortgage Lenders said that it expects house prices to drop by 7 per cent this year and the number of houses changing hands to fall by 35 per cent from last year as buyers and sellers stay away from the market.

In Cambridgeshire, the price of a £200,000 property dropped by an average of £3,000 in the first quarter of this year, while the number of people buying and selling has more than halved over the past year, according to Land Registry figures.

'The market has slowed, particularly at the first-time-buyer end, with lack of mortgages being the big sticking point,' says Steve Rivett, branch manager of William H Brown, the estate agent opposite Harris & Co. He has just launched a new marketing campaign, 'Make them an offer', aimed at encouraging buyers to barter with sellers. 'The property market is almost entirely confidence-driven, and without that it will continue to stall,' he says.

But the ramifications of a housing market that is rapidly drying up are already rippling out beyond estate agencies. The Royal Institution of Chartered Surveyors, which predicts that property sales could fall by as much as 40 per cent in 2008, believes a wide range of sectors related to the property market will also be hit this year, from home furnishings to mortgage brokers.

In well-heeled Ely, the sort of place that houses middle-class London commuters, local businesses are already feeling the impact of the economic downturn more quickly and more strongly than they had expected.

In the window of Griffin Antiques on Forehill, three doors down from Harris & Co, a big red sign advertises a closing-down sale. Boxes of books sit in the doorway while the mahogany furniture and shelves of dusty trinkets lie untouched inside.

Margaret Peters, who runs the shop, gestures out of the window. 'The whole town is dead. This is market day and look at it,' she says. 'Since Christmas there has been a real drop in, well, everything. I think people are frightened to spend, and things like antiques are way down their list of priorities.'

Last week we revealed how Community Money Advice, a charity that helps establish and support money-advice services across England and Wales in affluent areas where there are no Citizens Advice Bureaux, has reported an 85 per cent increase in people seeking help. One of the biggest increases was in nearby Cambridge, where debt inquiries were up 55 per cent.

Next door to Griffin's, in the cosy Inkwell Gift Shop, owner Patricia Donnelly tells a similar story to that of her neighbour. 'This is our second year here and sales are down substantially. We knew immediately after Christmas that things had changed - the difference was phenomenal,' she says. 'When the estate agent closed it did make me nervous, because you start to worry for yourself. You see businesses around you closing and you think, oh my goodness will I be next?'

On St Mary's Street, where estate agent Januarys once flourished, gallery owner Angela Mellor is also lamenting the loss of business. 'Since Christmas it has gone very quiet and passing trade is dismal. We are selling jewellery, scarves and some of the smaller paintings, but people have stopped buying the bigger, more expensive artworks,' she says. 'It's a shame because people who do come in say it's better than the London galleries, but they just don't have the money to buy.'

Mellor is now considering closing during January and February next year to try to save some money. 'It's a difficult decision but my overheads are so high. I'm only turning the spotlights on when people come in now.'

Around the corner in More Than Beds on Market Street there is a sale on, but no customers for a business largely dependent on a buoyant property market. Sean Adams, who runs the shop, is another Ely businessman who says he has been 'very, very quiet' since the beginning of the year.

'There is a fallout from the quiet property market. If you get a new house buyer you are OK but existing buyers will now take their own beds with them, where before they might have bought a new one,' he says. 'And things are made more difficult because we don't want to order just one bed at a time because of the price of fuel to deliver it.'

It is this combination of factors that is adding to the squeeze on both businesses and individuals. While more expensive mortgages are bad news for those with a stake in the housing market, the soaring price of petrol is hitting businesses and individuals. Last week the price of a barrel of oil hit a record $135 - twice what it cost a year ago. The average UK price for a litre of unleaded petrol is now about 114p, while diesel costs, on average, 126.4p.

Gas and electricity prices are also rocketing, with rises since the beginning of the year taking the average household annual dual-fuel bill to £1,048, up from £662 in 2005. On top of this, food prices have risen by 6.6 per cent over the past year - the highest rate since 1997 - according to the Office for National Statistics.

For businesses whose prices are low the picture is a very different one. Across the road from Harris & Co's office, there is a flurry of activity. Conspicuous by its brash exterior, the £ Superstore opened in October but manager Neera Saini says she has been 'very busy'. Inside, shoppers of all ages browse for brand names that are, in some cases, less than half the price they would cost in big-name supermarkets.

One single mother says she has changed her shopping habits in the past couple of months because of the increase in the cost of her mortgage and the rising price of petrol. 'I've just changed my home insurance as well and I would never have done that six months ago, but now that sort of small saving makes all the difference,' she says. 'I've noticed Tesco are doing more two- for-one offers now and that's the sort of thing I'm looking for at the moment.'

In Ely homes the reality of the squeeze on finances is hitting hard. Jacqueline and Ian Morecraft have been forced to put emigration plans on hold due to the credit crunch - and to slash their house price by £75,000. Despite dropping the guide price for their five-bedroom townhouse from £325,000 to £250,000, they have not received a single offer in eight months. They have moved estate agents six times in a desperate bid to find a buyer, but it was more than four months before they even got their first viewing.

'It's soul-destroying,' says mother-of-three Jacqueline, 47. 'We had planned to be living in America by now but we still haven't got an offer - just a hint of interest from a buyer who was stuck in a long chain. We missed the boat. When we decided to sell, people were getting scared. Now it's a buyers' market: there's a glut of houses up for sale and they can take their pick.'

In Hereford, 170 miles west of Ely, a similar story is emerging. Ten days ago, Monks estate agency shut its branch in the centre and two other estate agencies, Haart, part of the Spicerhaart group, and Taylors, have also closed branches in the cathedral city in the past few months. There, house prices have been stagnating since the beginning of the year but, more significantly, the number of properties changing hands has plummeted from 420 a month in August last year to fewer than 130 now, according to the Land Registry.

One Hereford-based estate agent, who asked not to be named, says he finds it 'petrifying' that other estate agents have closed down in the area. However, he points out that Monks 'was only open a year and didn't try to get much business' while Haart was squeezed out by local agents who charged lower fees.

'We are still getting people through the doors, and good-quality property in the right location is still getting interest,' he says. 'But until the first-time buyers come back, nothing will really start up again. There's still a lot of equity but we need new blood - we're waiting for first-time buyers to get their confidence back.'

Mike Lawry owns Interhome, a removals company in Hereford. He says business has been down for the past five or six months.

'The number of inquiries we get has been very much reduced, since Christmas really,' he says. 'Usually there's always a slow start to the year, but this year I'd say we're about 30 per cent down on inquiries, compared with how many we would normally get. We are still getting some business, because we do a lot for the local council, but in the short-term it's very worrying.'Additional research by Huma Qureshi

How a bank's over-zealous lending caused a homes crisis

A vicious circle powered by credit dependency that takes in everyone from the biggest high-street bank to local shopkeepers and their customers is already half-way through its revolution.

It all began with Northern Rock last year, the bank that had been recklessly financing lending by borrowing on credit markets. Its near collapse and subsequent rescue by the Bank of England led to an instant drought in the money markets. This then resulted in lenders rapidly shutting their doors to new borrowers and pulling generous mortgage deals from the market.

The result? The next stage of the cycle: a sudden slowdown in a property market that until then had seemed on a never-ending climb. Not only have prices started coming down but buyers and sellers are staying away from the market in droves.

For shops and businesses reliant on the property market this can mean only one thing - a sharp slowdown in turnover and a subsequent fall in profit. While some will continue by scaling back on investment and pursuing less ambitious plans for expansion, many will shut.

At this point in the circle the doors of the local job centre start swinging. Forced to wait for work or take lower-paid jobs, the people going through these doors will start to struggle with their repayments. Red credit-card bills will appear on people's mats, while missed mortgage payments will quickly lead to more repossessions.

The debt, unable to be met by the consumer, will fall back to the banks, adding to their liabilities and making it harder for them to lend. And the vicious circle is complete.